US authorities begin to investigate Binance's involvement in money laundering

What’s new? In a 2020 request, US authorities demanded documents from the Binance exchange to find out whether the company and its head, Changpeng Zhao, had violated the Bank Secrecy Act. The US Justice Department then launched an investigation into the situation, Reuters reported citing unnamed sources. The law requires crypto exchanges to register with the Treasury Department and comply with anti-money laundering (AML) requirements.

Information on Reuters' website

What is the essence of the authorities' request? The letter contains 29 separate requests for documents from 2017 (the exchange's launch) related to the company's management, structure, finances, anti-money laundering and sanctions compliance, and business in the United States. The Justice Department's Anti-Money Laundering Section asked Binance to voluntarily turn over messages from Zhao and 12 other executives and partners regarding the exchange's detection of illegal transactions and engagement of US customers. It also requested any company documents with instructions that “documents be destroyed, altered, or removed from Binance's files” or “transferred from the United States.”

Since 2021, more than a dozen financial regulators around the world have issued warnings against Binance, saying it either serves users without licenses or violates AML rules. In July, the Dutch Central Bank fined Binance more than 3,3 million euros ($3,37 million) for violating the country's financial crime laws.

How did the exchange respond? In response to questions from Reuters about the letter and the investigation, Binance Chief Communications Officer Patrick Hillmann said that this is a standard process for any regulated organization, and the exchange routinely works with agencies to address any questions they may have.

The exchange's CEO later wrote on Twitter that the situation was standard for the company and that it was no surprise that the cryptocurrency exchange had received a request from the regulator. According to Zhao, the request, dated 2020, asked the company to voluntarily share certain information. He added that it is important for the company to build trust with regulators.

Another story today about a crypto company receiving an inquiry from a regulator. A request to VOLUNTARILY share certain information back in 2020, which we did. Important for the industry to build trust with regulators.My chat messages are semi-public anyway. pic.twitter.com/h35Xd4tZhf— CZ 🔶 Binance (@cz_binance) September 1, 2022

What investigations did Reuters do? According to a series of investigations by the publication in 2022, Binance successfully operated with insufficient customer due diligence and withheld information from regulators. In early June, the publication reported that more than $2,35 billion had been laundered through the platform since 2017. Binance was used by hackers from the North Korean group Lazarus, people involved in the darknet marketplace Hydra, as well as other fraudsters and scammers.

In July, Reuters revealed that the exchange conducted transactions of Iranian customers until September 2021, despite US sanctions and a ban on doing business in the country. In early August, Binance's compliance team commented on a series of Reuters investigations, disputing a number of allegations, including claims that the exchange promotes money laundering more than other platforms. What's more, they said, the company suffered billions of dollars in losses as a result of implementing anti-financial crime measures.